EU Audit Firms are forbidden to offer non-audit services to their audit clients in the future. I addition, greater accountability, transparency and mandatory rotation issues are on the horizon
The final text will be approved in April 2014, and will include elements that increases or reinstates management, stakeholders and investors’ confidence and create a competitive audit framework for European businesses.
The EU politicians and law makers need to introduce reforms that will prevent relationships between clients and auditors from becoming too cozy, and at the same tile open up the market to greater competition by making European audit firms bigger, so that they can compete with the Big 4.
The reforms were characterized as exceptional when the commission introduced the green paper, in 2010. Since then, the audit reforms have been diluted and compromised to the extent that it now is acceptable to all stakeholders and special interest organisations.
The audit amendment was initially triggered by the financial meltdown, and had the primary objective to restore stakeholder confidence. The reform includes mandatory rotation of auditors, higher quality audits, greater transparency, and limits on non-audit services to their clients.
The audit package also prevents individual firms from using Big Four-only clauses that govern a firm's choice of the auditor to PricewaterhouseCoopers, KPMG, Deloitte or Ernst & Young. Public-interest entities (PIEs) like banks, insurance firms, and listed companies must call for tenders, before choosing an auditor.
No tax advisory services
Segregation of duties and preventing conflicts of interest were other governance issues that the reform addresses. EU audit firms principally are prohibited from providing non-audit services to their audit clients. The consultancy services include specifically any tax advisory services directly affecting a client's financial statements.
Politicians and lawmakers also believe that the quality of audits can be improved by demanding that the auditors in the EU, should meet international auditing standards for published reports. Shareholder disclosures and communication are often an issue that the commissioners want improved; therefore the auditors will have to provide shareholders and investors a detailed accounting of what they examined during the audit, as well as provide an comprehensive confirmation of the accuracy of a company's accounts.
Integrated reporting
The final text will be approved in April 2014, will contain elements that increases or reinstates management, stakeholders and investors' confidence and create a competitive audit environment for European businesses.
The interconnected nature of economic and financial performance and reporting also requires the combined disclosures of environmental, social and governance factors. This is provided by the components of integrated reporting that focuses on non-financial disclosures.
